From 22 to 24 August 2023, the leaders of the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People's Republic of China and the Republic of South Africa (BRICS) met for BRICS XV Summit held in Sandton, Johannesburg, South Africa, under the theme "BRICS and Africa: Partnership for Mutually Accelerated Growth, Sustainable Development and Inclusive Multilateralism". One of the agenda in the BRICS summit discussed was the creation of a new BRICS currency. Before going further it is essential to understand what BRICS is all about.
Evolution of BRICS
The BRICS association contains the world's most significant developing economies i.e., Brazil, Russia, India, China, and South Africa. The principal value of BRICS is the integrated commitment to reform the economic, geopolitical, and financial systems so that they are fair, balanced, and representative, relying on the main pillars of multilateralism and international law.
The Relationship between the BRICS nations way back in 2001 Goldman Sachs Report popularised the acronym while discussing the return of the BRICS nations to the global economy. In July 2006, on the side-lines G8 Outreach summit, the leaders of Brazil, Russia, India, and China countries first had an informal meeting in St. Petersburg, Russia. The BRICS is founded on the ancient bond of friendship, solidarity and shared interests. BRICS together represent over 42% of the Global Population, 30% of the World’s territory, 23% of GDP and 18% of Global Trade. After BRIC was formalised, in September 2006 the first official BRIC foreign minister’s Meeting was held on the side-line of the United Nations General Assembly.
In 2009, the First BRIC Summit followed in Yekaterinburg, Russia. In 2010, South Africa was invited to join BRICS. South Africa attended the Third Summit which was held in Sanya, China in 2011.
BRICS XV (15th) Summit and Currencies:
Countries across the world are challenging the traditional dominance of the West. BRICS Summit is one where the economies are not only opposing the dominance of the West but also altering the geopolitical landscape of World Trade.
The BRICS countries wanted to reduce their reliance on the U.S. Dollar for over a decade. The present Ukraine war and Western sanctions on Russia have hastened the process. On August 23, Brazil’s President Luiz Inacio Lula da Silva called for the BRICS nations to make a common currency for trade and investment between each other, as a means of reducing their vulnerability to dollar exchange rate fluctuations. He proposed this at a BRICS summit in Johannesburg. Brazil’s president doesn’t believe nations that don’t use the dollar should be forced to trade in the currency. In fact, he has also backed/ encouraged to have common currency in the Mercosur bloc of South American countries.
At the August BRICS summit, a name from the currency has seemingly already been ‘coined’ – the R5. This may be derived from the Currencies of all the five BRICS countries i.e. Brazilian Real, Russian Ruble, Indian Rupee, the People's Republic of China’s renminbi and South African Rand.
According to the Johannesburg II Declaration, “We stress the importance of encouraging the use of local currencies in international trade and financial transactions between BRICS as well as their trading partners. We also encourage strengthening of correspondent banking networks between the BRICS countries and enabling settlements in the local currencies.”
President Cyril Ramaphosa on outcomes of the XV BRICS Summit stated that “the Summit was attended by the BRICS member countries along with 61 other countries. He stated that Forty-six (46) of the countries that attended were from the African continent which included 20 Heads of State and Government.”
He also stated that “The other significant outcome of the Summit was the decision to expand the membership of BRICS to include Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates.” It was stated, during the August Summit, that more than 40 countries have shown interest in joining BRICS, and 22 countries have already submitted formal applications to join.
Why is it not easy to have BRICS currency?
However many economists and officials pointed out the difficulties involved in such a system with the economic, political, and geographic disparities between BRICS nations. It is not easy to have a BRICS currency. If BRICS needs to have its currency then it needs to address some of the following:
These are only simple four-pointers. There are other problems like policy issues, geo-political situations etc.… In 2010, to facilitate Cross-border payments between BRICS banks into local currencies BRICS introduced the BRICS Interbank Cooperation Mechanism. Also, BRICS countries are developing a payment system known as “BRICS pay”. This is a payment system for transactions among the BRICS nations without converting their local currencies into dollars. BRICS are also contemplating the options of Cryptocurrencies/ Bitcoin. By finding alternative payment options BRICS may change the entire global trade system as well as their reliance on US dollars.
U.S. Dollar to Remain Dominant King:
Since the start of the Ukraine War, many economies have been trying to reduce reliance on the U.S. Dollar (or in other words, the start of de-dollarization) for international trade and finance.
Over the past couple of years, Russia, China, and Brazil have started to use non-dollar currencies in their cross-border transactions. India was one of the recent countries among the BRICS to trade in its currency. Now, BRICS is taking various measures to decrease its dependence on the U.S. Dollar. Already, countries like the United Arab Emirates, Saudi Arabia and Iraq are vigorously exploring dollar substitutes.
However, the U.S. Dollar is dominating International Trade, Finance, and is also considered as the international Reserve currency. According to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) survey the U.S. Dollar accounting for global foreign exchange reserves accounts for 59 percent—its lowest level in 25 years.
It fell from 71 percent to 59 percent since the euro was launched in 1999. The U.S. Dollar is the most dominant currency for international transactions and it amounts to 88 percent. Therefore, the U.S. Dollar is still King for international transactions and trade.
The New BRICS currency may reduce the reliance on the U.S. Dollar. But, it is too early as it is only in the discussion stage for having common currencies. Until real currency comes into international trade and finance one cannot say anything. Even if it comes it may only reduce more reliance on the U.S. Dollar and cannot replace it. Therefore, the U.S. Dollar will remain a Dominant King for many years to come.